What is the state of the UK economy as the election approaches?

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Official data showed higher government debt levels and a rise in retail sales amid focus on the UK economy ahead of the general election.

On Friday, the Office for National Statistics (ONS) released its final monthly updates on key economic measures ahead of polling day on July 4.

Both Labor and the Conservatives have pledged to strengthen the UK’s finances over the coming years.

Here, PA News Agency looks at the current state of the economy and the challenges facing the next government:

– Economic development

The UK economy has recorded an improvement since the start of the year, but saw no growth in April due to wet weather, the ONS said earlier this month.

The stagnation came after a 0.4% increase in March, which was in line with economists’ forecasts.

Growth in March contributed to a 0.6% increase in UK gross domestic product (GDP) in the first quarter of the year, although the ONS will release its confirmed data next Friday.

While there is some weakness in the construction sector, strength in the retail, transport and haulage sectors have all aided recent growth.

The Prime Minister and Chancellor welcomed the quarterly increase, which comes after the UK fell into a brief recession in the back half of 2023.

Continued economic growth will be critical for the next government, with both Labor and the Conservatives helping to fund some spending commitments on improved economic growth.

– Swelling

Inflation is a term used to describe the rise in prices of goods and services.

The inflation rate fell to 2% in May, its lowest level since July 2021, according to official data released earlier this week.

This matched the Bank of England’s target rate for inflation, which was set by the government.

The reading showed prices were still rising from a peak of 11.1% in late 2022, but at a significantly lower rate, as energy prices rose following the Russian invasion of Ukraine.

The Bank of England said on Thursday that inflation is expected to be slightly higher again in the coming months but will remain close to the target rate.

– Interest rates

The Bank of England’s base interest rate, which determines how much money it charges commercial banks and thus affects what they charge customers – is currently at a 16-year low of 5.25%.

Interest rates in the UK have been at historically low levels since the 2008 financial crisis, but have been raised sharply by the central bank over the past two years.

These were increased with the aim of curbing the need for spending by making it more expensive to borrow money in response to inflation.

However, millions of UK households have seen or will witness increases in their mortgage bills and rising rent costs.

On Thursday, the Bank of England held rates for a seventh consecutive meeting but insisted it was „well balanced”, with many economists now predicting a cut at the next poll in August after a slowdown in inflation.

– State Finance

UK public debt, as a proportion of the economy as a whole, rose to its highest level since 1961, ONS data published on Friday showed.

Public sector net debt as a proportion of UK GDP reached 99.8% for the month.

Higher borrowing costs have put pressure on exchequers, which have been hit by increases in benefit payments and public sector wages.

This comes despite Prime Minister Rishi Sunak pledging debt reduction as one of his five pledges at the start of 2023.

Nevertheless, the government took on £15bn of debt less than forecast by the official forecaster in May and cut guidance by a total of £3.3bn in the first two months of the financial year, providing more wiggle room than expected for the next period. Government.

However, economists have warned that keeping departmental budgets stable will ultimately cost more due to higher borrowing costs and labor inflation, which will be a challenge for the next government as it balances the books.

– Consumer spending

Despite rising inflation, consumer spending has remained broadly strong over the past two years with some fluctuations between months.

ONS data on Friday showed that the volume of goods bought by UK shoppers rose by 2.9% in May.

This offset a drop in sales in April, when wet weather put many people off the high street.

Elsewhere, GfK’s long-term consumer confidence index last month posted its third consecutive increase since March, as Britons surveyed faced slower inflation and highlighted improved confidence about the economy.

– Labor market

Britain’s unemployment rate unexpectedly rose to its highest rate in more than two years in the latest official figures released last week.

The UK unemployment rate rose to 4.4% in the three months to April, up from 4.3% in the three months to March.

Vacancies fell sharply again, from 12,000 to 904,000 in the three months to May, adding to concerns about weakness in the job market.

But the figures show that regular earnings growth was unchanged at 6% in the three months to April and continued to outpace inflation.